Q3 2020 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the motorcar parts of Americas third quarter.

Earnings Conference call.

Time, all participant line journalists.

After the speakers presentation there'll be a question and answer session tough question during the session you'll need to press star one when your telephone.

Please be advised that today's conference is being recorded if you're acquiring any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Mr. Gary Maier.

Thank you. Please go ahead Sir.

Thank you Scott Thanks, everyone for joining us today for coal so before we begin I turn the call over to show a choppy chairman President and Chief Executive Officer, David Li The Companys, Chief Financial Officer, I'd like to remind everyone of the Safe Harbor statement included in today's press release.

Private Securities Litigation Reform Act of 1995 provides the safe Harbor for certain forward looking statements, including statements made during today's conference call.

Such forward looking statements are based on the company's current expectations and beliefs concerning future developments.

And their potential effects on the company there can be no assurance that future developments affecting the company will be those anticipated by motorcar parts of America actual results may differ from those projected in these forward looking statements. These forward looking statements involve significant risks and uncertainties some of which are beyond the control company.

And are subject to change based upon various factors. The company undertakes no obligation to publicly update or revise any forward looking statements whether as a result of new information future events or rather wise for more detailed discussion of some of these ongoing risks and uncertainties are the company's business I refer you.

To the various filings with the Securities and Exchange Commission.

I'd now like to begin the call and in turn the call over to sell one.

Thank you Gerry.

We should everyone joining us today as stated in the press release issued this morning, the generation of cash flow from operations and profitability a margin improvement were important highlights for the quarter.

Notwithstanding sales softness late in the quarter, primarily related to the timing of certain product borders and mild weather, we're making excellent progress and the execution of our strategic investments.

These investments are rapidly, creating a transformative platform for growth and profitability.

As long as to leverage our spreads within the growing $125 billion aftermarket hard parts industry and benefit from the changing competitive landscape.

In summary.

No the future initiatives are rapidly advancing you have substantially completed our transition into a new consolidated trends distribution facility in Mexico, and the final phase about new facilities Buildout is expected to be completed by the end about fiscal 2021 second quarter.

All of this will further enhance our scalability and our financial performance, particularly as we realize the benefits of our state of the our production of Kalpoes relocation of certain additional product lines to operations in Mexico from higher cost domestic production and other related overhead absorption initiatives.

[noise] as I mentioned last quarter I facility expansion in Malaysia is substantially complete this will allow us to increase capacity in productivity for our existing product lines and the loss to utilize the additional capacity to reduce dependence on outsourcing certain products all components.

I want to emphasize that MPS has a stat, which has established itself as a leader in the supply of internal combustion vehicle hard parts to our industry.

The market size for current category is multi billions of dollars.

Turning to lay marketing research internal combustion engine vehicles in operation the United States will increase by 36 million from 2020 through 2030.

From 282 million in operation last year.

These vehicles will continue to age fueling significant growth in the aftermarket parts replacement industry well beyond 2030.

In fact, these statistics should further benefit from vehicles in the peak solid years entering the prime or pace Prime poets replacement age.

In short our strategy is to leverage our significant channel relationships for aftermarket parts and offer superior parts of solutions to our customers and consumers.

Today, we are relentlessly focused on maintaining our growth rates for the hard parts categories that we offer as well as launching in establishing ourselves within the multibillion dollar brake pads category.

As we approach the into fiscal 2020, we are well positioned to benefit from our investments for continued growth in fiscal 2021.

Global footprint take sports expansion across multiple nondiscretionary aftermarket hard parts categories is nearing completion.

The solidifying our position as a valued premier supply in North America.

In addition, our cutting edge diagnostic testing equipment, all tomatoes, and start as industry leader.

Particular demand for our bench top test, though which is critical to determining the root cause issues related to the vehicle starting in charging system is gaining traction.

Well sales in the fiscal third quarter was soft we expect sales volume for these tests is to gain momentum in the quarters ahead, particularly in our new fiscal year as customers upgrade existing testers to meet the latest protocols, which supports the integrity of the advice they provide to consumers.

To complement our internal combustion business. We have also embraced the advancement of the fast growing world of electrified transportation.

Consequently, we have made significant investments in the rapidly advancing diagnostics for automotive electric vehicles and the electrification of the aerospace market.

Our offering of complete solutions with simulation emulation and production testing for the electric drive train is gaining traction.

Sales activity is gaining momentum and we have received orders from key blue chip global companies in both the automotive and aerospace industries.

Our strategic partnerships within the space are getting stronger, including our strategic relationship with all party, which we announced last quarter.

Recently, we announced the a problem and it would they respond as Chief Technology Officer, DMZ Electronics, we look forward to benefiting from his background and experience working for some of the leading global suppliers.

Providers of electric transportation systems, and the increasing global demand for electronic testing products and services.

This represents significant value creation opportunities.

In short on time company is well positioned for sustainable growth enhanced profitability and positive cash flow from operations.

Right and we remain encouraged by the outlook fall collection, expanding product lines and the transformative impact of I investments to support our current and future growth.

Let me reiterate what we expect for the full 2020 fiscal year based on the timing on completion of various initiatives and the ramp up of on you come up a business.

One continued year over year sales increases to higher adjusted gross margins and operating income and three we expect to generate positive cash flow from operations in this fiscal year compared to $40 million of cash used in operating activities in the right.

However, due to the factors impacting the fiscal third quarter, particularly sales softness late in this quarter as well as the recent corona virus outbreak and its potential impact on supply chain.

We now believe net sales for fiscal 2020, ending March 31st should be approximately $534 million and adjusted net sales for fiscal 2020 should be approximately 539 million.

Representing 13% growth you're over your both GAAP and non-GAAP basis, but sales momentum improving in the current fiscal fourth quarter.

Adjusted gross margin for fiscal two any 20 is still expected to be approximately 27% impacted by product mix as we discussed profitability and operating cash flow are expected to improve on a year over year basis.

To highlight the overall positive outlook. Despite some short term softer demand due to mild weather and deferred orders I refer you to investor presentation on our website, which show some macro industry charts, including a charge related to the expansion of the <unk> sweet spot for pet.

Yes.

As I mentioned earlier, the number of prime replacement aged vehicles is growing.

The statistics, along with our aggressive commitment to launch a break one further support our company's optimism for growth over the next several years.

I'll now turn the call over today the to review the results for the fiscal third quarter.

Thank you. So it did begin I encourage everyone to read the 8-K filed this morning with respect to our December 31st 2019 earnings press release for more detailed explanations of the results, including a reconciliation of GAAP to non-GAAP financial measures and the 10-Q.

Let me take a moment to review the financial highlights for the fiscal a 2023rd quarter, reflecting record sales for a third quarter and record nine month funny reported and adjusted basis.

Net sales for the fiscal 2023rd quarter increased to 125.6 million from 124.1 million for the same period a year earlier.

Prior year fiscal third quarter results included approximately net 7 million a core revenue in connection with the cancellation of the customer contract.

Adjusted net sales for the fiscal 2023rd quarter increased to 127.7 million.

119.6 million a year earlier.

Gross profit for the fiscal 2023rd quarter was 27.7 million compared with 21.2 million a year earlier gross profit as a percentage of net sales what does this work 2023rd quarter was 22% compared with 17% a year earlier.

Adjusted gross profit for the fiscal 2023rd quarter was 34.3 million compared with 30.9 million a year ago.

Adjusted gross profit as a percentage of adjusted net sales for the three months was 26.9% compared with 25.8% what your earlier.

The results for the fiscal 2023rd quarter gross margin were primarily impacted by two items totaling 5.8 million.

First non cash expenses of 3.7 million, including a write down of 2.4 million associated with a quarterly revaluation for cores on cost Michelle.

And 1.3 million or the amortization related to the opinion for core buybacks.

It is important to recognize that even though what a core value workforce on customer shelled maybe written down or a balance sheet, we're entitled to a full contractual price we fun, India then that their relationship with their customer is terminated.

Second transition cost a 2.1 million associated with the moved into the new facilities in Mexico to support the company's anticipated growth.

Total operating expenses decreased by 1.1 million to 8.4 million for the third quarter from 19.5 million for the prior year.

This decrease was impacted by <unk>.

The non cat 1.6 month gain for the quarter compared with a noncash loss of 860000. The prior year recorded due to the change in the fair value of the Ford Foreign currency exchange Clench Huh.

Non cash gain a 2.1 million due to the remeasurement foreign currency denominated beside nobody's <unk>.

Partially offset by 1.8 million up operating expenses attributable to our fiscal 19 acquisitions and other costs explained for the build up.

Adjusted operating expenses increased by 3.9 million to 20.1 million for the fiscal third quarter from 16.2 million for the prior year.

This increase in adjusted operating expenses was due in part you 1.5 million expenses attributable to our fiscal 2019 acquisitions.

476000 of expenses in connection with our internal control.

Mediation efforts at approximately 334000, not increased depreciation and amortization.

Additionally, approximately 500000 is related to additional professional fees at approximately 400000 is related to increases in both personnel and infrastructure expenditures to accommodate or anticipated growth.

Operating income was 9.2 million for the fiscal 2023rd quarter compared with operating income up 1.6 million or the prior year quarter.

Adjusted operating income was 14.2 million for the third quarter compared with 14.7 million prior year.

Adjusted EBITDA was 16.5 million for the third quarter compared with 16.2 million for the period a year ago.

Depreciation and amortization expense was 2.3 million for the third quarter.

Interest expense was 6.9 million for the third quarter compared with 5.8 million last year.

Increased interest expense was due primarily to increased average outstanding borrowings in connection with a growing Kirk initiative.

In addition interest expense for the third quarter was higher due to increased utilization of our customers accounts receivable at discount program.

Income tax expense for the third quarter was 1.5 million compared with income tax benefit of 1 million for the prior year period.

The effective tax rate was 63.5% for the quarter, which reflects the impact of not being able to recognize the tax benefits of a pre tax loss and a specific jurisdiction.

Net income for fiscal 2023rd quarter was 865000 or four cents per diluted share compared with net loss of 3.1 million or 16 cents per share a year ago.

Adjusted net income for fiscal 2023rd quarter was 5.5 million or 28 cents per diluted share compared with 6.7 million worth 35 cents per diluted share a year earlier.

Let me now discuss results for the nine months ended December 31st 2019.

Net sales for the fiscal 2029 month period increased 12%.

385.1 million compared with net sales of 343.7 million for the prior year nine months.

Adjusted net sales for the nine month increased 12.8% to 387.7 million compared with 343.6 million for last year.

Gross profit for the fiscal 2029 month period was 81.8 million compared with 63.2 million a year earlier.

Gross profit as a percentage of net sales for the fiscal 2029 month was 21.2% compared with 18.4% a year earlier.

Adjusted gross profit for the fiscal 2029 month period was 103.1 million compared with 89.8 million a year ago.

Adjusted gross profit percentage.

Adjusted net sales for the nine months was 26.7% compared with 26.1% a year earlier.

Net income for the nine month period was 903004 or five cents per diluted share compared with net loss of 5.1 million or 20 cents per share a year ago.

Adjusted net income for the nine months was 20.1 million compared with 21.2 million for the prior year nine months.

And adjusted diluted earnings per share were one dollar and five cents compared with $1.10 cents per diluted share last year.

Adjusted EBITDA was 53.2 million for the nine month period, compared with 49 million a year earlier.

That's at December 30, Onest 2019, adjusted EBITDA for the trailing 12 month was 78.1 million.

And the average equity and net debt balance what 409 million, resulting in a 19.1% return on invested capital on a pre tax basis.

I'm method of calculating auto I see is to divide trailing 12 months adjusted EBITDA by the average equity and net debt balance for the 12 month period I.

I should point out that we have just begun to realize the benefits of expanding our Mexico operations and the launch of a new break categories with the expectation of significant revenue growth from both new and existing caught us nine.

At December 31st 2019, we had net big data of approximately 145.6 million.

Total cash availability on the revolver credit facility was approximately 83.2 million at December 30, Onest 2019.

Based on a total 239 million revolver credit facility and subject to certain limitations.

At December 31st 2019, the company had approximately 727 million in total assets.

Current assets were 373 million incur liabilities were 298 million.

This reflects the adoption or the new lease accounting pronouncement, which requires balance sheet recognition of the these asset and liability for all leases.

Net cash provided by operating activities during fiscal year, 2023rd quarter was 22.3 million due impart to a 16 million decreases in accounts receivable.

For the nine months ended December 30, Onest 2019 cash used in operating activities was 4.4 million.

Depending on the timing of shipments we expect to generate positive cash flows from operations during the current fiscal fourth quarter.

And breakeven to modest positive overall cash flow from operating activities for the full fiscal year 2020.

Compared with cash used in operating activities over 40 million for the prior year fiscal 2019.

What a reconciliation of non-GAAP financial measures. Please refer to exhibit one through seven in this morning's earnings press release.

I will now open the call for questions and someone will then provide some closing remarks.

In summary, our investments are bearing fruit. Despite some deferral of revenue for this last quarter.

We have many growth opportunities ahead, and new business commitments or Oh continued supported by a are expanding line of products in both our parts and diagnostic your product by more than 50 year history in the aftermarket industry and all of US are committed to our vision of being the global leader for parts and solutions to move I will.

Today and Tomorrow I think at this point, we should open up one secure there.

As a reminder, which asked a question you'll need to press Star and then one on your telephone.

To withdraw your question. Please press the pound key please standby will we compile the couponing roster.

And we have a question from Chris Van Horn with B. Riley FBR Your line South.

Good morning, everyone. Thanks for taking my call wanting Chris [noise].

You know, obviously I'd really good solid execution. Despite some of those Robyn revenue headwinds during the quarter could you could you maybe give a little more detail on on specifics driving that mix you know anything else that that there was the main driver there.

Yeah, I think you know, we underperformed our expectations and I think that.

Almost 100% or 100% of good relates to deferral of certain product orders are we had a deferral of 12, a little over $12 million of orders.

Which will hit in the fourth and in future quarters, you know coming coming in the New York, So that was disappointing to us.

Had we got those orders, we would've had a very solid quarter, having said that the fundamentals of the business or someone intact I would.

Be cautious on the.

So the mild weather December December month seem to be I mean, we had a large customer indicate publicly that it was a soft month for them. So I'm not speaking out of school, so little bit of softness due to mild mild weather, but the fundamentals in our outlook or you know we continued to be excited about them.

Okay got it yeah in in the past you know you've had ordered referrals and you seem to you seem to be able to make them up within the one or two quarters. Following did these feel different are they kind of the similar to what you've seen in the past yeah. No. I think we expect that I mean, you know we did a update our guidance that we expect around 150 million.

In revenue for the fourth quarter out to the rooting for everybody and it's real simple to compute from what we said.

HM we think that some of that you know remedy will still into the first quarter, we are a little bit concerns with the Corona virus in China just in a there's a huge they will be a huge backup books of shipments a lot of factories being deferred from being reopened.

The less dependent on China than most but that may affect us little bit but that's included.

In our best thinking for this guidance for this guidance so.

[noise], we do think that there will be some spillover into the first quarter foremost deferral, but we feel pretty comfortable with our guidance and that's our best thinking right now.

We think margins will improve Brutus world in the fourth quarter and the outlook for cash flow looks positive so.

Production and development in the new space is looking very positive.

Remanufactured Culpas as we speak.

Capacity Malaysia's increased as we speak a lot depends quite frankly on China is less although we still do depend.

Oh on them for some parts and finished goods.

Okay got it thanks for that color and then you know you mentioned fiscal 2021 do you expect continued growth.

Would you be able to give any other details around how you might see that playing out for 2021.

So we haven't given guidance and we you know we're not gonna give formal guidance 2021 until next quarter, but having said that I mean is there's no secret announced strategy our strategy is to increase market share.

For all of our product lines and now we have new product lines.

That we intend to gain share in and have a lots of opportunity that we need to that we've closed on so I.

I think we now you know we've set our capacity.

The ability to move you know through over the next four years towards the billion dollar revenue Mark and Oh, I think I would be remiss than saying that really our plan really for the next four to five years is pretty simple, it's growing existing product lines stabilizes moved to match.

So with a new launch of the bread or break product lines.

And expand our or when I say existing product lines I'm, including all electric vehicle capability, which we think is a big added.

Opportunity for growth during the certainly what we see as fast or growth in the development of electrification of transportation vehicles are made whether it be.

Automotive heavy duty.

And aerospace so you know we've got a lot of growth factors, but they're all set in place submitted we don't need anything new.

Okay. Yeah that was going to my next question, where do you how do you feel about capacity and capex needs and it sounds like do you feel like you're pretty well set up to two kind of handled the growth that you expect yeah, we've kind of complete or the capex will come down dramatically as we complete our facilities.

You know, we think that Oh facilities should be complete by the end of the second quarter. This fiscal year and Capex should drop dramatically our capacity will will skyrocket from now.

And even though you know we seem to be gaining a lot of momentum in taking up a capacity. So we're excited about that.

Okay got it and then you know your last for me you don't have lead times changed a little bit with your product mix changing or do you think you have a handle on the visibility of some of the new product coming online.

I think we have a handle on them yeah, no I don't think lead times have changed I.

I think our core competencies in Remanufacturing, our supply chain is very strong how facilities and manufacturing capabilities in Malaysia, very predictable and very strong.

And so barring you know effects of the Corona virus, I mean, where we feel very much in control, where we all and with our lead times and.

And ongoing opportunities.

Okay got it thanks, so much for the time.

Thank you for you.

[laughter] under next question comes from Steve Dyer with Craig Hallum Capital Your line is Alabama.

Hey, guys Ryan said go on for Steve.

Hi, Brian.

As it relates to the krona virus in China, you guys seen any impact on supply chains or product coming and thus far or is that just a potential expectation going forward and then secondly on that topic.

As I look at inventory on the balance sheet. It seems like your plenty of inventory for at least the next quarter.

It's not a little farther so I guess is there are specific product categories that you're worried about or how do you think about potential disruptions there.

Okay. So let me divided there's absolutely no effect as of right now.

On from the crude in the virus, we do have good inventory levels are going forward.

The areas, where you get hit is in the fringe demand. So we have unique update orders that you need to supplement with supply out of China. There's risk there are some componentry that we use in our manufacturing comes out of China is was there and Ah we do have some inventories in China in a concern.

And warehouse and so depending on backlog of shipping, there's a little bit of risks that but having said that.

The risks for us as friends, it's not it's not a which we take very seriously, but it's not a we have we have good inventory levels and good capability.

Outside of outside of risk Rona bars, it's it's not a panic situation, but it's certainly effects may affect you know do you do you beat your guidance or you know when do you do you make all your shipments in the exactly on time for the fringe part numbers, let you rely on China.

Yeah.

Great spend if we if we think about guidance I mean at the midpoint revenue guidance is capped by 18 million you called out 12 million of deferral of orders some of that will be picked up in Q4 items and it doesn't sound like the krona virus will be two impactful I guess this quarter. So I guess, what's the what's the remaining delta there.

I think you had softness in our base product lines really in December and so we had you know we saw a reduction in autos and replenishment there and so we have seen some softness in demand.

Certainly we have no marketshare change and if anything I marketshare continues to increase.

But you know again I think if you listen to the to the retailers calls I think they'll give more color on.

Oh, certainly there has been one that's being reported are ready that I would listen to but the expectation is mild weather in the northeast as a slow down.

Demand for products that are dependent on cold weather and products that are dependent on cold weather for us is the charging system, which is all tomatoes and starters. So [noise] you know that was a unusual for us to have soft demand in our core product line.

Again, that's just a matter of that's very temporary and we expect that to root zone.

And then last question for me as it relates to the break calipers New line previously I think you'd said 30 million a contribution this fiscal years, that's still the right expectation and then any commentary on potential new customer awards in that category.

And just give me one second.

I'll give you a little more flavor on that just give me one second.

Yeah, I mean, I think we're going to be close so you have them in that $25 million to $30 million of revenue from.

Calipers, depending on again, a lot of that depends on the timing of the orders.

And then any new potential customer awards in that category or the pipeline there.

Well I mean, I don't want to comment on specific categories, just because you know but its a.

Yeah, that's probably not prudent to do that but overall, we have a lot of opportunities that are pending.

Great. That's it for me good luck guys.

Thank you.

And our next question comes from Justin Clare with Roth Capital Partners. Your line is not open.

Hi, everyone.

All right I address.

So I guess first off a your guidance on the adjusted gross margin suggests that a F Q4 margins could be around 28%.

So I'm just thinking you know as you ramp up your facilities in Mexico, and Malaysia, and as we move into fiscal 21 could we see margins improve upon that 28% level.

Look once we get into Mexico, the margin should improve absolutely as long as we don't suffer any losses, which we don't anticipate so don't read anything into that if we can continue to grow as we expect to grow and settle into that new footprint for the economics for our business get substantially though.

Okay. Thanks.

Then I guess related to that could you provide a little bit more detail on where you are in the process of relocating manufacturing from you know higher costs locations to to Mexico, you know how much longer do you have before you're comfortable with where are your manufacturing and all of your different product lines.

Right. So we I mean, just as a preface my answer on that is that we are a company that is focused on continuous improvement so.

The first phase is just getting down there and that's that's certainly will happen again by the second quarter of this was a this current fiscal.

Oh I missed the 2021 fiscal year end of next fiscal your we.

Then believes that will increase margins, we should have substantially everything down that is still will be some items that need to need to be moved but that'll be substantial them from that we'll see at that point you should see a big inflection at our margins and ER from there hopefully it continues to get better.

You know as we can implement continuous improvements and then obviously, we've got all the external variables of competitive the competitive environment to me and we'll have to see how the competitive environment shakes out that thing today.

And I don't want to be arrogant about this but I think we're sitting at a very strong competitive space.

For the opportunities that are ahead for us.

So we you know we've got to prove it to everybody and certainly that's content, but we feel like we've got a good handle on the margins a good handle on the savings as we get through this process.

And the opportunity for growth at these savings rates, which is most exciting.

Okay, Okay, great and.

And then I guess I, just shifting to Capex, you talked a bit about it already but can you sure. How much you spent in capex in FQ three what your expectation expectations are for for the fourth quarter and then.

Should we expect a year over year decline in fiscal 21 relative to fiscal 20.

So I can give you get a the guidance for the fall let's call. It 2020 were probably looking at about six or 7 million up maintenance Capex, probably about a 12 plus million for that the growth that's far assemblies and Mexico, you know when we come back for our fourth quarter. We can give further guidance on this call 21.

But again, we we've built out most of that so there's a little bit more drastic off at this quarter 21.

Okay got it and then I'll just sneak one more in here you are paid a 14 million I believe on your revolver.

Net leverage is down to 1.9 I can you just talking about your plans for debt repayment as we move forward here or should we anticipate that the debt levels declining further.

Well I think as we prove.

To you and to enter our shareholder base and as we generate additional cash flow.

We will look at no the most.

Opportune way to deploy that that cash flow I mean, I think with interest rates, where they are today I'm, there's not an immediate rush to pay down debt, assuming that we're generating cash and so there's opportunity to perhaps returns on capital shareholders.

As we as we get stabilized and get through it but as it goes point in time focus is.

Minimize the outstanding debt from our revolver as we go through implementing the the move and then once we get moved on them. We have proven stable positive cash flows, which we certainly expect.

We will look at a allocation of capital in the most opportune way to build shareholder value.

Okay. Thanks, guys I will pass it on.

[laughter] reminder, if you have a question press star and M. wine.

Our next question comes from Robert Robert Burghardt, with Global Alfalfa Capital. Your line is now open.

Yes, good afternoon.

Good quarter, just one question thinking on the a that question I'm trying to understand what are the interest my interest line.

His days Dawn I'm trying to figure out what that what is the interest bearing debt.

On your balance sheet that adds up to almost 7 million in interest for the quarter on there's there's something guy.

Don't quite understand.

Yeah.

So the majority of the expenses related to our accounts receivable to a customer in accounts receivable discount program. So with a major retail customers that we sell to we go through a supply chain accounts receivable at discount program and we get paid a in about a month so when we pay.

We get paid we pay a small discount Pete you know 10-Q disclosures, we do disclose how much of the sales have gone through that discount program.

And the interest rate.

Sure Yeah that is related to that program. Okay. Just a question then what is the interest rates on your revolver.

It's about 4.6%.

Okay and that you know in terms of real data this wouldn't be the on the interest bearing debt.

Oh, yes, it's a revolver and there's a terminal and they're both at about four point [laughter] No that terminal is very is not very okay. Thank you very much.

Thank you.

Our next question comes from Bill that's all I'm with Titan capital Your line is helping <unk>.

Thank you I'd like to circle back to a one of the previous questions. You ran screen relative to use of capital. If you get to the point to that that you do have free cash that you are looking to have returned to shareholders is your preference through buybacks or dividends and and what's what's the thought process her lodge.

Take care.

Yeah, I mean, that's that's a question that.

No. We haven't concluded on we'll have to look at back up at the right time.

So I can give you an answer but the logic will be carefully scrutinize to make sure that the allocation and how we use that capital to return to shareholders as best as best utilize that may be a combination.

And it may be a continuation of a about stock buyback program.

That's certainly something that finance group internally on the board will.

We'll be all over but we need to we need to get there in the next you know we think we get in the next summer.

Oh, six months and under 90 days and so.

I think.

You'll be hearing more about that in a new fiscal year.

Great.

Thank you sell in and then you'd mentioned the at the mild winter weather there have been some some bouts of cold weather that did hit at least in the Midwest or do you see that having a benefit to the business or.

Is that just overwhelmed a as here here in a a in the March quarter with the the bouts of warm weather that's been had.

Well I mean, I'm going to quote the O'reilly C O M, who basically says it's still over here in the quarter severe window, certainly as an opportunity and so I you know I don't know how quickly it translates to us it's probably.

Much more oh I've been influenced by FFO sport as customers you know worked through their inventory.

But if this cold weather going forward, it's always very helpful talk some in many categories. So.

We do see some cold weather does this this week and ER and we're just going to have to see but in general I would tell you that in almost all situations, where this extreme weather whether it be hot or cold. It's very helpful to accelerate call failures, having said that all these costs are going to fail anyhow. It's just not in this case.

Order, though failed in future quarters.

Thanks, and then how much of your wheel hub that manufacturing moved out of China by the end of December.

Wishing to supply more than 80% about production needs right now to the own facilities in Malaysia.

We're still working through we're still working through inventory levels, but yes.

And when do we Oh, given that you are working through inventory when do we have the financial benefit as a lower cost production coming out of how to Malaysia, rather than the higher cost Oh, that's flowing through the PNM today.

You know that's a it's difficult to tell depending on the volumes but.

You know that's a very competitive category. So I don't want to count on higher margins because of that the most important there is is to be a free of any.

Of any oh, the tariffs and to be you know have a better quality product than anybody else, which we believe we will have from our own facilities.

And [noise] so.

You know the margin opportunity certainly exists I think it's you know four to six months out at least but I would not be.

You know, let us give you further guidance as we get into the new fiscal year over where we are with margins.

Great. Thank you.

[noise] and I'm, just I'm showing no further questions I'd like to turn the call back over to Mr. Selwyn jockey for any closing remarks.

Thank you I'm I want to thank all our team members for their commitment that customer centric focus on service and for the sex exceptional pride and all the products, we sell the customer services, we provide their commitment to quality and service is also reflected in the wonderful contributions they make to their communities and our society.

They are terrific and I'm proud to work with them a company is blessed with a positive outlook and excellent opportunities for continued growth and profitability.

I would also like to wish all the people in China and anyone around the world affected by the Corona virus speedy recovery.

We appreciate your continued support and we thank you again for joining us for this coal we look forward to speaking with you when we host of fiscal 2024th quarter Conference call in June and at the various conferences that we intend to participate and thank you.

Ladies and gentlemen, todays.

That concludes today's conference. Thank you for participating and you may now disconnect.

[music].